The opportunity costs of conservation with deterministic and probabilistic degradation externalities

Abstract:
This experimental study examines variations in the opportunity cost of conservation (the foregone private earnings from appropriation) in two linear appropriation games that include symmetric and asymmetric subject payoffs. In the first game, appropriation leads to deterministic degradation in the value of the commons. In the second game, appropriation leads to both deterministic and probabilistic catastrophic degradation, introducing endogenous uncertainty in the value of the opportunity cost of conserving the commons. The experimental design abstracts away from path-dependent group dynamics that allow for reputation building. Instead the design is built around a one-shot, within subject, decision setting in which there is no potential to observe others decisions or signal one’s own intentions. In summary, subjects systematically decrease appropriation the lower the opportunity cost of conservation, and in decision settings with asymmetric game parameters, subjects appear to react primarily to their own marginal incentives rather than others. Moreover, the addition of probabilistic degradation leads to further decreases in appropriation. These decreases, however, are not large enough to offset decreases in expected efficiency due to expected losses in the value of the commons.